Why Alibaba Stock Spiked on Friday

Alibaba (NYSE: BABA) stock jumped more than 7% in early trading on the NYSE Friday, before turning tail and giving back nearly half its gains. As of 11:05 a.m. ET, shares of the Chinese e-commerce and technology giant are still up 4.1%. The question now is:

Does Alibaba stock deserve to stay up even this much? Because today's wild ride in Alibaba stock appears to derive entirely from competing rumors regarding Chinese artificial intelligence wunderkind DeepSeek.

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Big news (or no news?) in China

You'll recall that DeepSeek roiled stock markets across the U.S. last week, after rolling out R1 and V3 large language models that appear able to outperform the best LLMs that OpenAI, Anthropic, and even Alphabet have to offer.

Well, Chinese investors noticed that, too. It wasn't long before Alibaba unveiled an artificial intelligence product of its own that it said "surpasses DeepSeek's AI model across various benchmarks." A few days later, Alibaba changed tacks and began hosting DeepSeek on its own cloud servers. And now today, multiple Chinese news outlets have reported that Alibaba is planning to invest $1 billion of its own money into DeepSeek!

There's just one wrinkle: According to a Reuters report just filed, Alibaba is denying the rumors. Quoting "Chinese news outlet The Paper," and Alibaba VP Yan Qiao therein, Reuters says "news circulating that Alibaba will invest in DeepSeek is fake news."

Is Alibaba stock a buy?

So where does this leave Alibaba investors? Assume Alibaba's veep is being above board, and not simply playing word games (e.g., if Alibaba has already invested in DeepSeek, then news that it will invest might be untrue). In that case, you probably can't backdoor invest into privately owned DeepSeek by buying shares of Alibaba -- which is presumably the hope that drove Alibaba stock higher today.

You still can own Alibaba itself, however. And at a valuation of 20 times earnings, and barely 16 times free cash flow, and with long-term growth projected at 18.5% annually, that might not be a bad idea.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.